In a report published Monday, Cowen nd Company analyst J.B. Lowe discussed Transocean LTD RIG's "midlife crisis," in which the company's 12 UDW floaters built roughly 15 years ago are either stacked, idle or will off-contract before the end of next year.
Lowe continued that Transocean "by far" has the largest fleet of vintage (fifth generation) floaters in the global offshore rig industry. The analyst added that the fate of these rigs represents "the largest source of uncertainty" for the company's future cash flow and puts into question the company's results through the end of 2017.
The Rigs
Material Upside
With that said, the analyst stated that any "material" upside surprise on the contracting side will come from these units that are already assumed to have a "relatively low level" utilization rate. On the other hand, if all of these units are unable to be utilized through the end of 2017, the analyst estimated the negative impact to EBITDA would just be 3 percent in 2016 and 5 percent in 2017.
"In short, we believe much of the downside risk associated with these 12 ‘middle-aged' rigs has been priced into the shares," Lowe argued.
The Bottom Line
Shares remain Market Perform rated with an unchanged $12 price target.
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